The Australian Securities and Investments Commission will issue draft rules in June to limit trading activity within dark pools.

“Dark" pools are alternative platforms where trades take place anonymously, and prices are only reported after the trade is done.

ASIC deputy chairman Belinda Gibson said ASIC would propose “a range of alternatives to encourage participants to trade first on the lit (and licensed) exchanges" - a distinct change in tone from its previous “light-touch" approach.

The regulator will propose a requirement for price improvement in dark markets, which would prevent participants from making small trades at the same price as the best available bid or offer on order books on the “lit" market, such as the ASX.

“We have also set up a small taskforce within ASIC to look at how these dark pools are engaging with the market in Australia, and whether our light touch approach is still appropriate as their marxket share grows," she told a Chartered Secretaries Australia annual corporate update.

Ms Gibson said dark markets were growing rapidly in US and Europe and now accounted for up to 30 per cent of market turnover.

In Australia, such markets represented between 4 per cent and 10 per cent of trade and were growing very rapidly.

Dark pools in Australia take the form of independent platforms which typically deal in large size “block trades", as well as internal so-called “crossing networks" operated by brokers which match smaller size client trades before going to the lit market.

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James Chatfield, the head of Liquidnet Australia, one of the nation’s largest independent platforms, said he supported ASIC’s approach to dark pool regulation.

“Liquidnet is encouraged to see ASIC taking a collaborative approach with industry to ensure fair & efficient outcomes for all market participants," he said.

“We support the manner in which ASIC is working with regulators from other markets to ensure Australia remains a competitive and efficient trading market for investors."

Ms Gibson said the regulator was watching for a tipping point where dark trading activity became detrimental to the wider market.

“The focus of the debate is the point at which there is so much trading on the dark market for price discovery to be damaged, to the detriment of the overall market. I think there is agreement that this point can be reached, but the question is what it is."

“We are concerned that the retail investors, stuck in the lit market, lose out altogether due to preferencing in the pools and may lose out again, along with everyone else, if they are lured into the dark pools."

ASIC’s consultation paper on market structure CP168, currently under consideration, suggested a minimum order size for dark pools of $50,000 if the value of dark liquidity below block size increases by 50 per cent or more from $10.94 billion within three years of July 2011.

The proposed taskforce would investigate the level of trading in dark markets, who was trading, if everyone was treated fairly and what sort of supervision there was for manipulative trading.

King and Wood Mallesons partner Damien Richard said any regulation needed to reflect that policy driving the regulation of a “lit" market were not as relevant for dark pools used by professional investors.

“Regulation allowing monitoring of dark pools may be justified, but new burdensome regulation which significantly limits dark pools is not, especially at a time when we need to be attracting capital to Australia," Mr Richard said.